you are considering two mutual funds as an investment. The possible returns for the funds are dependent on the state of the economy and are given in the accompanying table. State of the EconomyFund 1Fund 2Good42%42%Fair18%18%Poor−18%−15% You believe that the likelihood is 14% that the economy will be good, 46% that it will be fair, and 40% that it will be poor. a. Find the expected value and the standard deviation of returns for Fund 1 AND 2 I have expecte value

Name: you are considering two mutual funds as an investment. The possible re
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Description: you are considering two mutual funds as an investment. The possible returns for the funds are dependent on the state of the economy and are given in the accompanying table. State of the EconomyFund 1Fund 2Good42%42%Fair18%18%Poor−18%−15% You believe

a) Expected values and standard deviation of returns for Fund 1: X PX XPX X2PX 42 0.14…

A First Course in Probability (10th Edition)

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Author:Sheldon Ross

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Chapter1: Combinatorial Analysis

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Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...

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you are considering two mutual funds as an investment. The possible returns for the funds are dependent on the state of the economy and are given in the accompanying table.

State of the Economy	Fund 1	Fund 2
Good	42	%	42	%
Fair	18	%	18	%
Poor	−18	%	−15	%

You believe that the likelihood is 14% that the economy will be good, 46% that it will be fair, and 40% that it will be poor.

a. Find the expected value and the standard deviation of returns for Fund 1 AND 2

I have expecte value

Expert Solution

Step 1

Expected values and standard deviation of returns for Fund 1:

X	$P (X)$	$X P (X)$	$X^{2} P (X)$
42	$0.14$	$42 \times 0.14 = 5.88$	${(42)}^{2} \times 0.14 = 246.96$
18	$0.46$	$18 \times 0.46 = 8.28$	${(18)}^{2} \times 0.46 = 149.04$
-18	$0.40$	$- 18 \times 0.40 = - 7.2$	${(- 18)}^{2} \times 0.40 = 129.6$
		$\sum_{}^{} X P (X) = 6.96$	$\sum_{}^{} X^{2} P (X) = 525.6$

Expected value of return for fund 1:

$E (X) =$ $\sum_{}^{} X P (X) = 6.96$ %

Standard deviation for fund 1:

$σ =$ $\sqrt{\sum_{}^{} X^{2} P (X)} = \sqrt{525.6} = 22.926$

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